Four Undervalued Retailers (ANF, ZUMZ, CHS, TRLG)

by: Faisal Laljee
Abercrombie (NYSE:ANF) has been in limbo since late last year and the recent market declines have put it at its lowest P/E since October 2004. With its Hollister brand topping a Piper Jaffray teen spending habits survey as the best place to shop, and the company finally targeting the 25-40 demographic through its Ruehl 925 stores, ANF is looking for growth outside its flagship brand, and doing a pretty good job of it.

In its most recent quarter, ANF earned 62 cents per share, topping the Street's expectations for 54 cents per share. It then forecast earnings between $1.28 and $1.33 per share, despite an eight-cent charge for new accounting rules, higher than consensus estimates, which stand at $1.23 to $1.28 per share. With a low forward P/E of 11, no long-term debt and teen spending on apparel at an all-time high (43% of a teen's budget now consists of fashion related merchandise), ANF has the right image and sex appeal to attract not just teen fashion seekers, but also young working professionals.

Zumiez (NASDAQ:ZUMZ) is a niche brand that has taken the world of extreme sports by storm. It sells apparel, equipment and footwear for people with an affinity towards action sports like biking, snowboarding, surfing etc. While some might balk at the thought of this being an undervalued retailer, I submit the following reasons for my proclamation:

* That ZUMZ is a small-cap with a market cap of less than $800 million, with 180 stores in 19 states.
* It has plans to open 42 stores in 2006 with a target of 800 stores in the US over the long-run
* It boasts sales growth of almost 39% over the last 3 years and same store sales growth of almost 20% in recent months.
* It is expected to grow at over 30% over the next 5 years, which if it does, makes it a $3 billion company by 2011.
* It resembles the Pacific Sunwear (NASDAQ:PSUN) of 2003 when PSUN sported fast growth and a high P/E.

With the gaining popularity of Winter Olympics, and introduction of Winter X Games and Summer X Games, we are entering a new era of extreme sports and ZUMZ, with its in-store video game stations and an enhanced shopping experience, has one up on its competition.

Chicos (NYSE:CHS) is a stock I have written about earlier. You can read my take on it here. Meanwhile, I want to reiterate that this is not some mature laggard retailer. It has plans for expansion and I have it on good faith that it is looking to make some acquisition announcements soon.

True Religion (NASDAQ:TRLG), the maker of the popular jeans made popular by JLo and Fergi's humps is perhaps the cheapest of the growth retailers out there. It has held up well in the face of this market decline considering that it was at 17 when the market started this downtrend. I wrote about True Religion a few months back so click here for more commentary on this stock.

Ann Taylor (NYSE:ANN) and Gymboree (NASDAQ:GYMB) are both excellent retailers with high growth prospects, a loyal following and innovative brand appeal. Gymboree hires their customers and rewards them primarily through discounted merchandise. In return, it gets valuable feedback from its target customer group - Moms. While GYMB has almost reached its targeted 600 stores nationwide, its growth prospects lie in concept stores like Janie and Jack and Janeville. Management triggered a turn around last year by changing their displays to attract more traffic and has succeeded in taking market share from the likes of Baby Gap.

Ann Taylor's merchandise is one of the trendiest and most popular among professional working women. Last May (2005), ANN had negative same store sales growth. However, it too has turned around and the stock has been soaring, along with sales growth (clocked at over 22% last month), triggered in part by the new Ann Taylor Loft stores, which appeal to the more casual professional woman.

Both ANN and GYMB are due for a pull back after sitting out the recent broad market decline. Therefore, I do not recommend purchase of this stock unless both come in 10-15%.